November 18, 2012 - Ray Tsuchiyama

As anybody who has seen the Wailea hotel construction, the Kihei Safeway shoppers, and the tourists along Front Street in Lahaina, Maui among all the Neighbor Island “County” island micro-economies that make up the Hawai’i State GSP (Gross State Product, rather than the U.S. GDP) ranks first -- according to First Hawaiian Bank's 2012-13 Economic Forecast* report by Hawai'i economist Dr. Leroy O. Laney. In fact, he paraphrases the Maui visitor slogan and states that Maui is "No Ka 'Oi".

Dr. Laney points to three critical factors as underlying the Maui economic boost: “stronger job creation, a continued robust visitor industry and growing strength in construction”. In other words, Maui is providing jobs to job-seekers, hotel occupancy is near-full (not back to the mid-2000s visitor count, but still tremendous), and new hotels and commercial malls are going up. He adds that housing is following on the heels of hotel and commercial development (e.g., the Courtyard by Marriot next to Costco’s and the Kahului Airport, the Maui Business Park Phase II, Andaz Wailea hotel, Maui Lani Village Center); the economist states: “. . . there has been a striking 350 percent increase in private construction permits on Maui for the first quarter of 2012 compared to the same quarter of 2011”.

The Oahu micro-economy, which dominates the collective Hawai’i economy, has been firing on “all cylinders” boom since earlier this year, with summer real estate statistics reflecting strong demand and higher prices. Star-Advertiser: Oahu home, condo prices continued climbing in July 2012 For example, in May 371 Honolulu condominiums were sold, up 12 percent from 290 sold in May 2011. The median price for Honolulu condos rose to $300,000, up 3.4 percent from a year earlier.

In July 2012 the median price for Honolulu single-family homes rose 7.4 percent to $635,000 from $591,000 in the same month last year. July's median was the second-highest this year, after $664,000 in May. In the Honolulu condo market, the median sale price surged 15.5 percent to $320,000 in July from $277,000 a year earlier. The July figure was the highest this year, after $319,000 in April and represented the biggest year-over-year gain on a percentage-point basis. Also in July the sales numbers were also positive. There were 265 single-family home sales in July, up 5.6 percent from 251 sales a year earlier. There were 364 condo sales, up 21.3 percent from 300 in the same comparable period. Then by this fall, the Honolulu market was seen as "constrained".

In last week’s Star-Advertiser article entitled “Tight Home Inventory Dampens Oahu Market” Star-Advertiser: Tight Home Inventory Dampens Oahu Market November 2012, the SA writer sees buyers hunting for new homes amidst a shrinking number of sellers: “ Oahu’s housing market has been constrained this year by low inventory as relatively few homeowners put their property up for sale even as the market gains strength. And something similar can be said, too, of the market for new homes.” As Oahu moves into winter and even better economic indicators, there is now a dis-connect between demand (high and getting higher daily) and supply (smaller and getting smaller daily).

Since Oahu’s real estate got its boost from a resurgent economy, what about Maui? Last April I wrote about a “cautious” Maui upturn, as Oahu was showing signs of real estate uplift that proved strong enough to sustain into the summer and fall.

Now, it is harder to extrapolate Maui real estate trends, since comparing Maui, an island of 155,000 residents, and Oahu (950,000) is like comparing apples to oranges, or mangoes to breadfruit. However, the principle of a robust and growing economy translates to a faster absorption of inventory (commercial, industrial, residential) quicker, so the recent positive economic data points must mean something is in the air. One factor that played in Oahu’s housing market recovery was the faster resolution of foreclosures, and that was still a factor in the Maui market well into this year. This October over a dozen bank owned Maui properties were sold (almost all single family homes) – vis-à-vis 40 bank owned properties that closed in October 2011 – a startling 60% drop in bank owned transactions.

Simply, the Maui 2012 sales numbers were higher in the spring compared to 2011, then more-or-less followed the slow summer dip of 2011, until this fall, when September (<200) to October (<250) suddenly spiked. Historically, October 2012 was the busiest since the mid-2000s, which was still feeling the good effects of the 2000’s pre-Lehman shock and pre-Aloha Airlines bankruptcy real estate wave. More data points:

98 Maui homes sold in October (traditionally a “slow” month, with Maui realtors anticipating a swarm of activity of buyers in the winter) with a median price of $487,000. Year-on-year, last October, there were 74 homes sold. So year-on-year, sales volume did increase -- 28%. As an impressive data point, three sales occurred in the Kapalua Plantation Estates high-end residential community – which is remarkable, given there were barely two dozen sales in the same area in the last ten years. Also, 94 condos sold in October. Last October, there were 77 condos sold. So year-on-year, sales volume did increase -- 22%.

There were only 7 Maui land sales reported. Year-on-year, sales volume decreased, as in October 2011 8 sales were reported. October was one of the slowest months for land sales, but may present a hidden message of a up-coming switch of focus to vacant land.

The bottomline for buyers, sellers and realtors is whether the 2012 Fall issue of Oahu’s shrinking inventory will migrate to Maui sooner than later, or is it happening already now in November 2012?

In order for this to occur, there must be buyers offering close-to listing prices with favorable closing conditions in offers to sellers (without onerous financing language in the contract). If outside buyers surge into the market in the week after Thanksgiving, from Canada and the Northwest, they will start colliding with each for the same property, and this may start the end of 350/500-day property listings, especially in the higher-end. Foreclosed properties will be even fewer, and there may be a psychological boost with waves of visitors, and Oahu buyers looking for deals and investment properties, believing this may be the calm before higher prices next year.

On a final hypothetical note, will Maui vacant land be the sleeper market leader during the next year? The reason is that if there is not enough inventory or sellers not lowering prices, some buyers may give up and look to vacant land, and start building new homes, creating their own inventory, and also simultaneously boosting the economy.

*Hawai’i economist Paul Brewbaker pointed to the magical date of October 26 2012 as the start of the next surge of high prices and sales – at a real estate talk on Kauai in 2005! So he may be the Nostradamus of Hawai'i real estate.